If you’ve exhausted all other avenues toward paying for college — a laundry list that includes saving up, raising money and applying for gift aid like grants and scholarships — you have every reason to be tracking student loan interest rates. They have the most direct effect on the cost of student loan repayment.

While federal loans come with uniform annual percentage rates (APRs), private loan interest rates vary by the strength of your credit or — for teens and 20-somethings with thin credit reports — that of your cosigner. Here’s how student loan rates are trending for new borrowers and current loan-holders considering refinancing their education debt.

Methodology

The student loan interest rates listed above are averages among borrowers with credit scores of 720 or higher who used the Credible marketplace to select a lender between the start and end dates of the most recent week.

College Ave Student Loans

APRs

6.99% to 13.99% (fixed), 6.99% to 13.99% (variable)

Minimum credit score

Mid-600s

Repayment terms

5 to 20 years

On Credible’s Website

Private student loan interest rates in August 2024

Unlike federal loans (interest rates below), private loan rates from the best private lenders come in two types: fixed and variable. Fixed rates remain the same for the life of the loan, bringing certainty to your budget. Variable rates, meanwhile, start lower but can rise or fall with the market.

Today’s average student loan rate for 5-year variable terms is 12.34%, while the average for 10-year fixed terms is 7.50%. Here’s how those averages change across credit profiles:

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Current federal student loan rates

Federal student loan interest rates for the 2024-2025 academic year were set in May 2024 — and represent the highest rates in more than a decade.

The table below shows the federal loan rates applicable for each loan type. All borrowers pay the same rate for each loan type, regardless of their credit scores, income or financial credentials. Because the rates are fixed, payments and interest costs don’t change over time.

How are rates determined? The Higher Education Act established a formula to determine interest rates for federal Direct Loans. The first step is to determine the high yield of 10-year Treasury notes at the most recent auction of those notes held before June 1. (During auctions, the US Treasury sells bonds, setting yields through the bidding process.) Then, a set percentage is added, based on the type of student loan, to determine the fixed rate charged to all borrowers in the upcoming year.

How do federal direct subsidized loans work?

With all unsubsidized loans, including federal and private loans, interest begins accruing when loans are disbursed. Students who don’t pay interest during school end up owing more than they initially borrowed. This doesn’t happen with direct subsidized loans because the government covers interest while the borrower is in school, during the post-graduation grace period and whenever loans are in deferment. No interest accrues during these times, so the balance doesn’t grow.

Direct subsidized loans are available only to undergraduate students with demonstrated financial need. You must complete the Free Application for Federal Student Aid to become eligible. The amount of subsidized loans offered is determined based on your FAFSA results. You’re limited to borrowing between $3,500 and $5,500 annually in direct subsidized loans depending on your year in school, and there’s a $31,000 lifetime limit.

What causes private student loan rates to fluctuate?

Private student loans are made by individual lenders, each of which has a formula for determining interest rates. Many factors impact the rates lenders set, including:

• The supply and demand of credit: When demand is higher, rates increase. When demand is lower, rates decrease.
• The lender’s cost of raising capital: The more expensive it is for lenders to access money, the higher student loan rates will be. When the Federal Reserve raises the federal funds rate, the costs of capital typically increase.
• The costs of servicing the loan: This is the amount it costs a lender to collect payments and provide customer support to borrowers.
• The lender’s profit margins: This is the return that the lender earns.

Borrower financial credentials also affect private student loan rates, including your credit scores and income. And you may choose a fixed or variable rate: With fixed-rate loans, the rate never changes. With variable-rate loans, rates start lower but can fluctuate over time depending on the financial index — often the Secured Overnight Financing Rate (SOFR) — to which they’re tied.

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Will student loan interest rates decline?

No one can predict with certainty whether interest rates on future loans will be higher or lower than the rates currently offered. With that said, here’s what could cause federal and private loan rates to drop:

• Federal loans: If 10-year Treasury yields are lower in the last auction before June 1, 2024, than in the 2023 auction, rates will decrease for loans disbursed after July 1, 2024.
• Private loans: If market conditions change favorably and the cost of capital declines, the demand for credit declines or the supply of credit increases, rates may drop.

Did you know? Treasury yields and market conditions are impacted by economic predictions made by investors, indicators such as employment and inflation data, and Fed policymaking.

At its Jan. 31, 2024, meeting, the Federal Reserve declined to modify its current target interest rate and indicated it would not be appropriate to reduce rates until it’s more confident that inflation will “move sustainably toward” 2%. If the Federal Reserve doesn’t reduce interest rates, this reduces the chances of student loan rates declining in the near term.

How to get the best possible student loan rate

Before you get a student loan, consider these steps to lower your APR:

• Exhaust federal student loans first. Federal loans typically offer more affordable fixed rates, and rates aren’t impacted by your credit or income. Federal loans can also come with deferred interest (in the case of direct subsidized loans) and offer generous borrower benefits, including the SAVE plan and loan forgiveness options.
• Shop around. If you must take out private loans, remember that lenders set unique rates. Get quotes from several lenders — and prioritize those that offer pre-qualification — to make sure you’re being offered the best possible terms. 
• Apply with a cosigner. Applying with a creditworthy cosigner increases your odds of securing a better rate. Parents or relatives with good credit and more substantial incomes can often serve as cosigners.
• Understand loan terms. Variable-rate loans may start with lower rates but can be riskier because rates can rise over time.
• Use a student loan payment calculator. Comparing different loans is easier with a free calculator (such as Calculator.net’s). Focus on total cost and monthly payments, as loans with longer repayment timelines have lower monthly payments but cost more in interest over time.

Alternatives to student loans

Borrowing should be a last resort, as loans have to be repaid with interest. Other options to pay for school include the following:

• Savings: Parents and adult relatives can save for college in tax-advantaged accounts, such as 529 plans. If you’re wondering how much to sock away, try your hand at a college savings calculator.
• Scholarships and grants: These don’t have to be repaid and can be offered by schools, state or federal governments or private organizations. Your school’s financial aid office can be a good resource to find scholarships and other gift aid opportunities.
• Work-study: Students may be eligible for the federal work-study program, which allows them to obtain a job on or off campus to earn money toward their costs. Federal work-study placements are assigned based on FAFSA information.
• Tuition payment plans: Some schools allow payments to be made over time rather than all at once. This can make it easier for students working their way through school to cover costs without borrowing.
• Employer tuition assistance: Some employers provide financial aid assistance — including tuition reimbursement — for workers earning a degree.

Frequently asked questions (FAQs)

Melanie Lockert and Devon Delfino contributed to this article

Fact checked additionally by Emily McNutt